I wrote about how Republic Airways Holdings Inc. (RJET, Financial) looked cheap yesterday and the stock shot up over 50% today.I didn’t buy a single share. I’ve been in the market long enough where I’m not kicking myself, but I’m definitely shaking my head. This gives me an opportunity to pause and reflect on whether I made a mistake or if I just missed out on dumb luck.
Background
- RJET fell from 7/24/2015’s closing price of $8.50/share, to 7/28’s closing price of $3.44/share. During the last 52 weeks, the stock has fluctuated between $3.05/share to $15.36/share.
RJET fell from 7/24/2015’s closing price of $8.50/share, to 7/28’s closing price of $3.44/share. During the last 52 weeks, the stock has fluctuated between $3.05/share to $15.36/share.
- On 7/27, Republic Airways warned that its operation could be affected by a pilot shortage and labor standoff which precipitated the stock’s fall.
- Note: RJET earns money with fixed fee code share agreements with their partners where the price of fuel is passed through so oil price doesn't affect them. The major airlines outsource business to RJET because its more cost effective.
Republic Airways Holdings Inc. route map
Reasons for not buying
- I am not an expert on the airline industry. I still have a LOT to learn in this space and don’t understand the full scope of operational, competitive, and regulatory risk. Just look at RJET’s route map and you can see how complicated its operations are.
I am not an expert on the airline industry. I still have a LOT to learn in this space and don’t understand the full scope of operational, competitive, and regulatory risk. Just look at RJET’s route map and you can see how complicated its operations are.
- Hiring Seaboard, a firm that specializes in helping companies out of difficult situations, added more uncertainty. What we know for sure is that RJET will spend a hefty amount on fees so a reasonable assumption is that something serious is going on.
Hiring Seaboard, a firm that specializes in helping companies out of difficult situations, added more uncertainty. What we know for sure is that RJET will spend a hefty amount on fees so a reasonable assumption is that something serious is going on.
- I researched the company’s wages for pilots and saw that starting wage was $20,000 and concluded that wages will definitely rise.
I researched the company’s wages for pilots and saw that starting wage was $20,000 and concluded that wages will definitely rise.
- The company has a lot of debt which makes me uncomfortable. You can see the Debt to Equity ratio below. However, my understanding is that some of the debt is paid for by their partners, the major airlines.
- I still think the upcoming earnings call on 8/7, will be the perfect time for management to dump a lot of bad news given the stock is already in the gutter.
Final thoughts
- I don’t think the company is worth $0 and the company’s all time low was $2.57/share in 2011 when it had -$3.14 EPS that year.
I don’t think the company is worth $0 and the company’s all time low was $2.57/share in 2011 when it had -$3.14 EPS that year.
- I had an opportunity to buy RJET at ~$3.44/share (Currently at $5.26).
I had an opportunity to buy RJET at ~$3.44/share (Currently at $5.26).
- I think the company’s intrinsic value ranges between $2/share to $8/share. The large range is completely because of uncertainty. We have no idea how many flights will be disrupted.
- Uncertainty is a variable in EVERY investment. It's when the odds look in your favor that you take a swing.
- RJET was a situation where there was much more upside than downside. As a result, I made a mistake by not at least taking a small position. Had I taken a position, it would have been luck that the price snapped back so quickly.
I had an opportunity to buy RJET at ~$3.44/share (Currently at $5.26).
- Today, the company is not trading on fundamentals as no news has come out.
Today, the company is not trading on fundamentals as no news has come out.
- It’s interesting to see what the traders are saying. In the Twitter screenshot below, not one person mentions anything about RJET’s business.
It’s interesting to see what the traders are saying. In the Twitter screenshot below, not one person mentions anything about RJET’s business.
Let me know your thoughts. Do you agree with my assessment? How do you reflect on past decisions? I would also love to hear from technical traders on how they look at a situation like RJET and what patterns they’re searching for.
Disclosure –Â I don't own any of the stocks mentioned in this article but may initiate a position if prices become attractive.
